Gold futures closed higher Friday, leading an advance across the metals pits as the dollar fell sharply following a weaker-than-expected May jobs report and traders awaited the next exchanges in Iran's nuclear dispute with the West

Gold for August delivery closed up $7.50 at $641 an ounce on the New York Mercantile Exchange. The contract was recovering from a six-week low hit Thursday that marked a third consecutive session of declines, as traders continued to lock in recent gains.

Gold was down 2.5% from its closing level at $657.40 an ounce a week ago.

The dollar tumbled after the Labor Department said the economy added just 75,000 jobs in May, less than half the 174,000 expected by economists polled by MarketWatch. Revisions reduced job gains in the past two months by 37,000.

"The U.S. employment report provided the Fed with the unambiguous signal needed for a pause, as payroll growth undershot already-falling expectations, while the work week ticked down, and the hourly-earnings gain was restrained," said economists at research firm Action Economics.

Financial markets reacted sharply on renewed speculation the Federal Reserve may pause in its steady campaign of rate increases, with the dollar hit especially hard.

The dollar was last trading down 1% against the yen and 1% against the euro. The greenback was flat before the jobs report was released.

"Today's weak jobs report spurred buyers of the yellow metal back into the game after the falloff that some were naive enough to call the end of the commodities boom," said trader Kevin Kerr, editor of Global Resources Trader, a newsletter published by MarketWatch.

"The idea of a Fed pause now seems very likely and gold may find renewed interest coupled with the ongoing fears of geopolitical risk as Iran continues to rattle it's sabres."

Iranian President Mahmoud Ahmadinejad said Iran will not give up its right to create nuclear energy because of Western pressure.

His comments came a day after the permanent members of the U.N. Security Council and Germany agreed on a package of incentives they intend to offer Iran in an effort to stop it from enriching uranium.

European leaders are expected to present the package, details of which have not yet been made public, to Tehran in the coming days, according to media reports. Diplomats have suggested incentives would include help in developing nuclear-power plants and supplies of safely-enriched uranium.

U.S. Secretary of State Condoleezza Rice said in a television interview that Iran needs to respond to the offer within weeks or face penalties. The U.S. would like to impose U.N. sanctions on Iran if it fails to halt its activities but Russia and China, both of which have veto powers on the Security Council, are opposed to such a move.

Russian Foreign Minister Sergei Valvrov said Friday that the Vienna agreement rules out any force against Iran, the BBC reported. Separately, John Negroponte, the head of U.S. national intelligence, told the BBC that Tehran's current program could produce a nuclear bomb within 10 years.

"The primary catalyst to this morning's rebound continues to be an intractable Iran that continues to refuse to blink – even in the face of unified international pressure," said Jon Nadler, investment products analyst at bullion dealers Kitco.com.

However, "interestingly, the fact that this time, goodwill and hours are both running out for Iran does not appear to preoccupy traders as intensely as it once did," he said.

Earlier, gold found support from reported comments by a Chinese central bank board member, who said the country should use its foreign-currency reserves – the world's biggest – to buy gold and oil as a hedge against further weakness in the dollar.

Yu Yongding later told Platts that the country is diversifying its reserves, but denied the reports in local and international news outlets that he recommends moving aggressively on gold.

Elsewhere in the metals sector, silver finished up 18 cents at $12.09 an ounce and was up 5% on the week.

Platinum closed up $15.10 to $1,244.90 an ounce. The metal lost 4.1% on the week. Palladium closed up $15.75 at $353.15 an ounce for a 0.5% decline on the week.

Copper recovered part of its prior-session losses to close up 11.5 cents at $3.5865 a pound. The metal lost 6% from its close at 3.815 a pound last Friday.

On the supply side, gold inventories were unchanged at 7.79 million troy ounces as of late Thursday, according to Nymex data.

Silver supplies fell 398,806 troy ounces to 108.4 million and copper supplies dipped by 66 short tons to 9,478 short tons.